Our estimable Treasury Department introduced the Home Affordable Modification Program with considerable fanfare earlier this year. However, things are not getting better for those who have trouble paying their mortgage. The Treasury says that banks are not doing enough. But, it may be that the program is not good enough.
Consider how the program calculates affordability. It considers only the payments on the mortgage plus insurance and taxes. However, most of us have more debt obligations than the mortgage - the credit card, the car payment and, in too many cases, the second mortgage. Shouldn't these other obligations be factored into the calculation of affordability?
Further, it appears that another aspect of second mortgages is not playing a role here. There is no interest in pressuring the banks - to whom we have given so much money - to write some of these mortgages off. These second mortgages appear as a $442 billion asset on the books of the banks. Writing these mortgages down to their true value would seriously impact each banks' balance sheet, perhaps to such a degree that bonuses will not be earned. That would be a major problem for Tim and his friends.
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